Saturday, December 20, 2008

first crack at transport cost impact

I recently read Marc Levinson's The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, and was reminded of a task on my to-do list that I have yet to cross off: I want to create one of those fancy maps I love where distance represents transportation cost/time. I'm still not sure of the details. Perhaps I'd take each major market and then have all the other countries orbiting around the market, with distance based on transport cost and country size based on GDP.

Unfortunately, I haven't gotten to that point because it's proven damn difficult to get anything near comprehensive data on the subject. Levinson has a few nuggets:

Being landlocked, one study calculated, raises a country's average shipping costs by half. Another study found it cost $2,500 to ship a container from Baltimore, on the U.S. Atlantic coast, to Durban, in South Africa - and $7,500 more to haul it by the road the 215 miles from Durban to Maseru, in Lesotho.
I checked the bibliography and snagged the source PDFs online. One of them, Infrastructure, Geographical Disadvantage and Transport Costs, has some interesting data on African country transit costs, albeit from 1999.

I threw the data into Excel, popped in the current GDP (PPP) per capita, and below is the result. In the original paper linked above, the transport cost for US to Germany was 1.0. I created a "large market" proxy transport cost by averaging the transport costs from each city to the US, Germany, and Japan.

*Oil-rich country, transport costs for non-oil products may be underestimated

In the bubble chart below, bubble size is proportional to GDP per capita, with the Transport Cost on the Y-axis, countries sorted by GDP per capita (lowest to highest) along the X-axis.

When I sorted by transportation cost, three countries stood out to me as having some of the lowest transportation costs yet only average GDP per capita: Senegal, Togo, Gambia

Further down on the list, three more countries stood out with average transportation cost rates associated with much higher GDP (e.g., $2,000 range) than they achieved: DRC, Guineau-Bissau, Sierra Leone.

I don't know a ton about the countries besides violence, but thought I'd bring them up in case an African aficionado happened to have something to offer.

For my part, I make no conclusions. This is just the first attempt at exploring transportation costs. I'm still on the lookout for better data, but for now, I'll leave you with conclusions from that 1999 paper.
Our main results are, first, that infrastructure – both own infrastructure and that landlocked countries’ transit routes -- is a significant and quantitatively important determinant of transport costs and of bilateral trade flows. For example, improving destination infrastructure by one standard deviation reduces transport costs by an amount equivalent to a reduction of 6,500 sea km or 1,000km of overland travel.

Second, being landlocked raises transport costs by around 50% (for the median landlocked country compared to the median coastal economy). However, improving the infrastructure of the landlocked economy from the median for landlocked economies to the 25th percentile reduces this disadvantage by 12 percentage points, and improving the infrastructure of the transit economy by the same amount reduces the disadvantage by a further 7 percentage points.

Third, combining estimates from transport cost data with the trade data we are able to compute the elasticity of trade with respect to transport costs; it is high, at around –2.5. This means that the median landlocked country only has 30% of the trade volume of the median coastal economy.

Improving infrastructure to the 25th percentiles raises this to over 40%.

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